A Curious Discovery: An Entrepreneur's Story

by John S. Hendricks

It is important to understand this characteristic of cable because, in 1985, we were setting out at Discovery to distribute television through cable systems—and we had two choices, “basic” and “premium.” Now, let’s say a network owner—like we were—decided to launch its channel as a basic cable service and it was available in all 100 million U.S. households. And imagine that this network needed revenues totaling $1 billion annually to pay for its programming and operations. Then that network would only have to charge a wholesale subscription fee of just $.42 per subscriber per month to generate half of its break-even revenue, $500 million per year, from those 100 million subscribers. Due to the universal reach of its programming, the basic network could easily generate the other half of its revenue, $500 million, from advertisers. This also means that a cable operator could carry 100 of these channels and pay wholesale subscription fees of just $42 on behalf of each of its subscribers. Now, obviously, the cable operator would have other costs than just for programming, and so the basic retail fee might be realistically set at $60 to $80 for each customer. That would be attractive and a low cost to the customer: 100 or more channels, each transmitting twenty-four hours a day. Remember: a price for just one movie or documentary on a DVD costs about $14.99. So, for the price of just four or five DVDs, a cable subscriber can enjoy an entire month of programming from 100 or more...